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Brussels, 5 June 2002

Commission closes investigation regarding Italian State aid schemes favouring certain public undertakings Illegal aid awarded must be recovered while the exemption from asset transfer tax does not constitute State aid

The European Commission has closed its investigation of two Italian State aid schemes since discontinued - which had the effect of favouring undertakings controlled by Italian public authorities mainly active in the utilities sectors established according to law 142/90. The Commission concludes that a three-year income tax exemption and the possibility to contract reduced-interest loans with Cassa Depositi e Prestiti, must be considered State aid. In effect, these measures had the effect of strengthening the competitive position of the undertakings concerned vis-à-vis that of privately owned operators, Italian or other, without there being any acceptable justification under EU State aid rules for granting such an advantage. In other words these measures distorted competition to the detriment of competitors active in the same sectors and ultimately of consumers. As a consequence of the Commission's decision, the amounts corresponding to the illegal advantage must be recovered by the State. The exemption from asset transfer tax for the transformation of aziende municipalizzate into joint stock companies ("SpA") was found not to constitute state aid.

In 1997 the Commission received a complaint from an Italian association of private water distributors alleging that the Italian State was granting illegal aid to joint stock companies with public majority shareholders created according to Law no.142 of June 8, 1990. This law provided for a reform of the legal arrangements that a municipality can use in order to provide some services to its local community. Beside the traditional arrangements (like e.g. the setting up of a separate accounting entity or the granting of a concession), Law 142/90 added for the municipalities the possibility to create joint stock companies (SpA) in which the municipalities would maintain the majority of the shares.

As a result these undertaking became entitled to receive loans from Cassa Depositi e Prestiti (CDDPP)- These loans turned out to carry an interest rate lower than the market rate. Moreover, in 1993 and in 1995 Italy established an income tax exemption for this category of undertakings and provided also for an exemption on all taxes relating to the transfer of assets to the joint stock companies created according to Law 142/90.

The Commission learnt about these measures, which had not been notified, from the 1997 complaint and after requesting some clarifications to the Italian authorities, it decided to open a formal investigation procedure. The Commission had doubts about the compatibility of the measures with EU State aid rules. Already at the time the Commission made clear that the present case concerns aid schemes (and not individual cases), that is the instruments by which the Member State offered advantages to all undertakings fulfilling the conditions laid down in the schemes themselves.

However, the Italian Authorities were able to demonstrate that the exemption on all taxes relating to the transfer of assets does not qualify as State aid since it is justified in the light of the logic of the system and does not grant any advantage to the undertakings in question.

As to the three years income tax exemption and the access to CDDPP loans, the Italian authorities also argued that they did not constitute State aid because, at the moment of their entry into force, the markets in which the SpAs were operating were not open to competition. The Commission cannot accept this claim: The investigation enabled it to verify that at least some of the markets in which these SpAs operated were actually open to competition and nothing in the schemes made sure that the aid was only applicable to SpAs involved in non-liberalised markets.

Another argument put forward by Italy was that the aid should be considered as compatible with the common market under Article 86(2) as aid aimed at compensating the cost of a public service and/or Article 87(3)(c) as aid aimed at the development of a certain economic activity. The Commission, however, concludes that none of the above derogations to the general prohibition of State aid is applicable in the present case. Firstly, the measure cannot be considered as the compensation for the extra cost of public service obligations performed by the SpAs. Indeed, the granting of the aid is not linked to an explicit entrustment with any public service obligations, and the Italian authorities did not demonstrate the existence of any such obligations. On the contrary, the decisive criterion for benefiting from the special fiscal treatment was the nature of the company (joint stock company) and its shareholder composition (majority public). As to article 87(3)(c), it cannot be invoked since none of the conditions for its application are met. Moreover the measures do not apply to an entire economic sector but only to some public undertakings operating in that sector.

Having reached this conclusion, the Commission has decided that the Italian authorities must now take all necessary measures to recover the aid illegally granted under the two schemes and thus re-establish a level playing field between all operators in the sectors concerned. Since the assessment of the Commission only concerns the aid measure as a general scheme and not the application of the measures in any specific case on the special fiscal regime, this decision does not exclude the possibility that, because of particular circumstances, in some individual cases there is no need to materially recover the aid (for instance the aid might be compatible for other reasons or might remain within the limits of the "de minimis" rule).

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